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Aug. 18 — Russia's Federal Tax Service says it will allow private entrepreneurs in Moscow to
continue to use an umbrella patent taxation system even when they lose the right to
use one out of several patents.

The federal agency clarified the patent tax guidelines in a notice published Aug.
18.

In the city of Moscow, the law on the patent system of taxation provides that for
retail business owners, one patent may be granted for several retail outlets whose
sales area is less than 50 square meters. Still, because annual revenue in retail
depends partly on the location of the store, in cases when there are several stores
located in different municipalities, a business owner must have several patents issued
for each retail outlet.

In this case, the FTS explained, the private entrepreneurial business that loses the
right to use one of its patents is entitled to continue to apply the patent system
of taxation on other patents granted to the business.

The FTS also said a private entrepreneur who lost the right to use the patent taxation
system or discontinued business activities prior to the expiration of the patent will
still be entitled to buy a new patent for the same type of business activity, but
not earlier than the next calendar year.

How It Works

Russia introduced the patent tax system in 2013. Under the system, a private entrepreneur
pays a fixed sum for a patent on a certain type of business activity, valid for one
to 12 months. The system is available to private entrepreneurs with fewer than 15
employees and whose annual income on one type of activity is more than 100,000 rubles
($1,500) but less than 1 million rubles.

An entrepreneur may lose the right to use the patent tax system if they are late to
make a payment or if their business doesn't meet the requirements in terms of turnover
or number of employees, said Roman Terekhin, managing partner at the Business Fairway
law firm in Moscow.

In this case, the entrepreneur switches to the general taxation system, which means
paying value-added tax and 20 percent income tax, Terekhin told Bloomberg BNA Aug.
18.

The patent system is easy to use and is cheaper for small businesses than paying for
accountant services, Terekhin said, adding that the FTS clarification is intended
to lower the risks for private entrepreneurs who lose the right to use one of their
patents.

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